Countdown to the Real Work on Health Care Reform

With a commitment of 60 votes, Senate Majority Leader Harry Reid unveiled the manager’s mark of the Patient Protection and Affordable Care Act or, as it is better known, the Senate’s health care reform bill. After day long negotiations over abortion and other issues, Senator Ben Nelson agreed to vote in favor of bringing the bill to the Senate floor.

The manager’s mark of HR 3590 identifies the changes made to the  original Senate health care reform legislation (in other words, if you want to read the bill you have to read both the original and the most recent document). As has been widely reported, there are some provisions of the legislation specifically aimed at securing the support of Senator Ben Nelson of Nebraska. For example, the health care reform bill will increase state spending on Medicaid. The Senate bill reimburses states for this extra cost until 2017 at which time the federal matching funds are phased out. Except for Nebraska where the federal government would pay for Medicaid expansion forever. (Or, to be realistic, until Congress takes the subsidy away).

There’s a host of other provisions of interest. A government-run health plan is out of the bill, much to the frustration and dismay of liberals. Carriers would be required to maintain a medical loss ratio of 80 percent for small group and individual products while meeting a minimum 85 percent MLR for their large group block of business. Rating differences based on age would be limited to a 3-to-1 ratio. However, states could increase the minimum medical loss ratios or narrow the age-based rating difference. There’s new language concerning abortions, one of the inducements to get Senator Nelson’s vote, although this language is apparently not strong enough for anti-abortion Democrats in the House.

The Office of Personnel Management would create a copy of the Federal Employee Health Benefit Plan featuring private carriers. (It appears both for-profit and non-profit plans could participate in this new program, but I may be reading it wrong and only non-profits are permitted). There’s a host of preventive/wellness programs, pilot projects and other provisions aimed at addressing costs. And it would allow carriers meeting certain federal standards to offer coverage in other states through state exchanges.

(I received an email from a conservative broker blasting this provision as removing the ability for “the Citizens of a State having a say on State Laws and Mandates!” Which is pretty funny considering it’s at the center of Republican reform proposals, was a part of Senator John McCain’s health care reform platform when he ran for president, and is not much different than the Associated Health Plans advocated by conservatives for over a decade. Sometimes it seems to be less about the underlying public policy and more about who makes a proposal that drives the reaction.)

The bottom line is that Senator Reid did what he needed to do to cobble together 60 votes in the Senate. What, in the words of former Majority Leader Tom Daschle, is the equivalent of shoveling 60 frogs into a wheelbarrow.)  As a result, the Senate will pass health care reform.

And that’s when the fun begins. There are substantial differences between the House and Senate versions of health care reform. Perhaps Speaker Nancy Pelosi, recognizing the greater challenge Senator Reid has in rounding up votes, will instruct House negotiators to quickly adopt the Senate version of health care reform. This could result in a bill passing Congress in very early January.

More likely, however, House and Senate negotiators will struggle to refine the legislation. The result will be closer to the Senate version than what passed the House, but it would not be the same HR 3590 that will pass the Senate. This process will take significantly longer, perhaps most of January. While unlikely, the conference committee has the power to start with a blank piece of paper and write a brand new bill.

My guess is Speaker Pelosi will focus on a few key modifications to the Senate bill. So long as it doesn’t cause one of Senator Reid’s frogs to jump out of the wheelbarrow these will be accepted. The result will a relatively short conference committee leading to a final vote on health care reform by mid-January.

What’s significant is that the playoff season is almost over. The World Series (that would be the conference committee) is about to begin. Which means the real work of writing health care reform legislation is about to begin.

Added December 21, 2009: Memorandum from the Congressional Budget Office to Senator Harry Reid summarizing their analysis of the Patient Protection and Affordable Care Act and to a blog posting by CBO Director  Douglas Elmendorf concerning a correction to the calculation of federal reductions beyond 2019.

Is Taxing Health Care Coverage on the Way?

Ideas percolate through the political process in interesting ways: editorials in authoritative publications, important speeches, and more recently, blogs.

For example, the Director of the Congressional Budget Office maintains a blog and it includes an entire section concerning “Health.” The CBO will have a great deal of influence on the health care reform debate. They will provide the benchmark analysis of whatever plans emerge. What they’re thinking matters and, presumably, what their Director is thinking is what the agency is thinking.

For example, former CBO Director, Peter Orzag, now the Director of the Office of Management and Budget, have long warned of the need to reign in health care costs. According to Jonathan Cohn, writing in the New Republic, Mr. Orzag was one of those within the Obama Administration pushing hard for addressing health care reform now, as opposed to later. Clearly what the budget folks think matter. To gain an insight into Mr. Orzag’s thinking, the CBO Director’s Blog is a good start.

The same holds true for the thinking of the CBO’s new director, Douglas Elmendorf. Consider his recent post concerning reigning in medical care costs. In it he notes that “a substantial share of our national spending on health care contributes little if anything to overall health.”  He calls for providing incentives to control costs and sharing of information concerning the effectiveness of treatment. Then he makes an interesting comment: “… the current unlimited tax exclusion for employment-based health insurance dampens incentives for costs control. Those incentives could be changed by restructuring the tax exclusion in ways that would encourage workers to join health plans with higher cost-sharing requirements and tighter management of benefits.”

This opens up a host of interesting worm-filled cans. During the presidential campaign, Republican Senator John McCain called for taxing the value of health care coverage (along with offsetting tax credits). The Democratic nominee, now President Barack Obama castigated the idea, calling it the biggest tax increase on the middle class in history. However, many in Congress of both parties are reviving the idea. OMB Director Orzag has indicated that all ideas, even taxing the value of health care coverage, needs to be on the table. Few other comments on the topic have been forthcoming from the Administration, but realistically, paying for the cost of universal coverage will require at least a strong look at this revenue option.

On the surface, this makes a lot of sense. The current system is regressive, meaning it is a better deal for the wealthy than for lower income Americans. The higher your tax bracket and the richer your benefits, the better the current system works for you. For example, a CEO earning $500,000 a year, paying an effective tax rate of 40 percent (state and local) and receiving health insurance benefits worth $10,000 per year. If the coverage was taxed, our hypothetical CEO would pay $4,000 in taxes. Instead, she gets a “gift” from the tax code of this amount. Working for this CEO is a clerk, earning $40,000 per year and paying 15 percent in taxes with the same coverage. If the value of health insurance was taxed the employee would pay $1,500 in taxes — his gift is less than half of the CEO’s.

You might think Democrats would be jumping all over this loophole. After all, they’re the party of progressive taxes. Instead, those few who are willing to raise the issue are demonstrating real political courage. Because unions, who contributed millions of dollars and armies of foot soldiers into the election of a Democratic Congress and President, are adamantly opposed to taxing benefits.

For decades, unions have negotiated rich health care benefits for their members in lieu of salary increases. Their members valued the coverage, which was received tax free. It was a reasonable trade-off for employers — they can deduct the cost of health insurance just as easily as they deduct the cost of salaries. Changing the rules of the game would, in essence, punish union members for doing what economists say everyone should do: pursue economic self-interest based on the rules of the game.

There are ways to mitigate the pain unions will feel if health insurance is taxed. As Mr. Elmendorf notes, the tax rules can be modified rather than eliminated so as to encourage consumers to choose cost effective plans. Or the value of union negotiated health benefits could be exempted from the tax for a transitional period, allowing unions and employers to negotiate new contracts under the new rules.

Health care reform is going to be expensive — covering all Americans will cost over $1 trillion. We’re already spending large sums to salvage the tattered economy (and, apparently, to enrich the AIG traders who helped get us into this mess). Yes, the government can print the dollars it needs, but that leads to another problem which goes by the name of  inflation.

If health care reform is going to be enacted in the next 12-to-18 months, which I think it will, the money for reform will need to be identified. My guess is taxing health care coverage will be one of those sources. It won’t be a straight repeal of the current exemption, it may be offset with subsidies and credits, some coverage may be grandfathered for awhile, but the tax is coming. 

Meaningful health care reform will change a lot of the rules we’re used to. This is just one of them.

Roundup: McCain and Obama Health Plans

As a quick search will reveal, I’ve expressed my vieaw of the presidential candidates’ health care reform plans in several posts over the past few months. Put simply, my belief is that the proposals by Senator John McCain and Senator Barack Obama are both grievously flawed. The winner on November 4th would be far better served repositioning their ideas as a statement of philosophy, principles and concepts rather than a blue print for change. The incoming president should then start with a blank slate and come up with something that might actually to more good than harm.

But that’s just my take on their plans. I thought it might be interesting to pull together in one post links to what others are saying about the plans. I’ve tried to find opinions and blogs from across the political and policy spectrums, but if you think I missed an important perspective, please let me know by writing a comment and providing links of your own.

To get things started, here’s a quick comparison of the McCain and Obama health care reform plans. The Commonwealth Fund offers a more detailed review.

  • John Goodman takes both plans to task (my thanks to Ron Masters for bringing this one to my attention).
  • This post on the Harvard Kennedy School’s site, describes all things wonderful about Senator Obama’s proposal.
  • The PatientAssistanceblog finds things to like in Senator McCain’s plan.
  • The American magazineaccuses Senator Obama of seeking to end private health insurance.
  • The Lewin Group prices out the costs of both plans (such estimates should be taken with huge quantities of salt as another, equally respected group can come up with far different results. It’s sort of similar to why polls differ to much. It’s all in the assumptions.)
  • The Physicians for a National Health Program are advocates of a single-payer health care system. They don’t like either proposal.
  • Voters desire for significant health care reform is noted over at MedPage Today.
  • Richard Locker of the Commercial Appeal (a paper in Memphis) agrees with me that the candidate’s proposals are merely starting points expressing their attitudes toward health care reform. He also explains why many think substantial change is unlikely to emerge from Washington any time soon.

This is far from being an exhaustive list. I’ll probably add more between now and election day and, again, I hope you’ll add to the list by leaving a comment, too.

Obama Must Do Better on Health Care Reform

In his stump speech, during the presidential debates, highlighted in his 30 minute commercial, Senator Barack Obama has made clear that, were he elected president, health care reform will be near the top of his priorities. It’s viewed as a critical component in fixing the nation’s faltering economy, ranking alongside energy independence and a middle class tax cut at the top of his domestic agenda.

Senator Obama’s commitment to the issue is more than ideological, although he does see health care coverage as a right of all Americans. It is also highly personal. Senator Obama described the roots of his committment to health care reform in Sarasota, Florida yesterday this way: “And as somebody who watched his own mother lying on a hospital bed at the end of her life because they had cancer. The insurance companies were saying this was a pre-existing condition, maybe we don’t have to pay for your treatment, I know what it’s like to see a loved one suffer not just because they’re sick but because of a broken health care system.”

This combination of ideology, politics and the personal will assure that health care reform would be taken up early in an Obama Administration. Given his passion for the issue, the state of the economy and the real need to address serious problems in the current health care system, the odds are extremely high a comprehensive reform package will emerge sometime in his first term. Whether these reforms will be similar to what Senator Obama describes on the campaign trail, however, is, fortunately, both uncertain and unlikely.

One reason is because Senator Obama’s health care reform plan is seriously flawed. To cite just one example, a core attribute of his proposal is to require carriers to except all applicants for coverage without regard to their medical condition. As he put it in Sarasota, “… when I am president, we will end discrimination by insurance companies to the sick and those who need care the most.” This is a noble purpose, but if done wrong, it can lead to a health care reform surcharge that would increase the number of uninsured in the country while increasing costs in the system. The “wrong” way is require carriers to sell coverage without requiring consumers to purchase it. This, in essence, is how non-employer sponsored coverage works in New York and New Jersey. Average premiums in those states are more than twice what they are in California

The need for matching mandates, was integral to Senator Hillary Clinton’s health care reform plan. She perceived it more as a means to universal coverage, but also acknowledged that “adverse selection” is a real, proven phenomena. Imagine the premiums auto insurance companies would need to charge if drivers could wait until after an accident to buy automobile insurance. That is adverse selection and it is exactly what Senator Obama is proposing.

Another reason Senator Obama’s health care reform proposalis unlikely to survive the legislative process intact is it will need to compete with a host of other plans. Senator Ron Wyden (a Democrat) and Senator Bob Bennett (a Republican) have brought together a bipartisan coalition of Senators behind the “Healthy Americans Act.” Then there’s the proposal by Dr. Ezekiel Emanuel, Director of the Clinical Bioethics Department at the National Institute of Health, who proposes a voucher system financed by a Value Added Tax and shares some elements of the Wyden-Bennett proposal. Senator Ed Kennedy is talking to Senators and policy mavens from across the political spectrum to develop a reform package he hopes to introduce in January. Republicans, too, have a host of ideas for reforming the nation’s health care system. Some might even look similar to the health care reform package advocated by Senator John McCain during this presidential campaign.

In short, there will be no dirth of ideas when Washington begins to address health care reform in 2009. Hopefully a coherent, workable plan will arise from this stew of policies and concepts. Senator Obama speaks of being open to other approaches. As he put it when speaking at a Families USA forum in January 2007, “… affordable, universal health care for every single American must not be a question of whether, it must be a question of how. We have the ideas, we have the resources, and we will have universal health care in this country by the end of the next president’s first term.”

As president, Senator Obama would do well to remember these words. There will be pressure to pass something and pass something quickly. The “First 100 Days” nonsense will be pushed forward as his only window for pushing through comprehensive reform. This is silly. It’s far more important to get health care reform done right than according to an arbitrary timetable.

Instead of rushing reform, President Obama should demand that all the “hows” be on the table. He should require participants to leave their egos and pride of authorship at the door. He should demand an honest appraisal and accounting of both what’s working and what’s not working in the current system. He should set forth the principles he expects to achieve in the process. Then and only then should the hard work of building a new, better system, one that will provide “affordable, universal health care for every single American” begin.

Yes It’s the Economy, But It’s Health Care Reform, Too

In 1992, James Carville wrote down the key messages then Governor Bill Clinton’s campaign had to focus on in order to win.

  1. Change versus more of the same
  2. The economy, stupid
  3. Don’t forget health care

Throw in a cup of national security and you’ve got the same recipe for presidential success in 2008. Anyone listening to a speech by Senator John McCain or Senator Barack Obama will appreciate that their campaigns understand this reality. And given the recent credit crisis and financial maelstrom, the economy has become an even more central part of this election. In interpreting the public’s demand for change, however, the dominant position of economic issues should not hide the fact that voters want health care reform, too.

According to the October Kaiser Health Tracking Poll, no surprise here, the economy is overwhelmingly, the most dominant issue in this year’s campaign. 62 percent of the survey’s respondent’s listed the economy as “the single most important issue in [their] vote for president.” 13 percent of the respondents cited Iraq while 12 percent named health care.

Economic concerns emerged as the key issue long before the current financial crisis, however. In the December 2007 poll, Iraq was the top issue, with 30 percent of the respondents listing it as the most important issue. It was followed by the economy at 23 percent and health care at 21 percent.

In February 2008, the economy had moved into first place, having been named by 43 percent of respondents. The percentage name Iraq and health care as the most important issues remained constant at 29% and 21 percent, respectively.

By August 2008 49 percent of respondents were citing the economy as their top issue while Irag had dropped to 25 percent and health care to 16 percent. The Kaiser survey interviewed “likely voters” by phone between October 8th and October 13th, well after the economic crisis had set in, making the big change in the results understandable.

One might conclude from this that health care reform is moving off the public’s radar as a salient issue. That would be a mistake. The Kaiser survey shows that 75 percent of Democrats and 61 percent of independents believe “it is more important than ever to take on healthcare reform.” Even 42 percent of Republicans agreed with this statement. What it shows is that health care reform and economic security are intertwined and inseparabe. A key aspect of “fixing” the economy will involve “fixing” health care.

According to the Kaiser study, 35 percent of respondents themselves or a family member had put off getting health care they needed because of the economy. 31 percent said they skipped recommended medical tests or treatment and 27 percent said they didn’t fill a prescription. 28 percent of the respondents reported they had problems paying for health care and health insurance as a result of recent changes in the economy.

Restoring consumer confidence is a substantial part of recovering from economic set backs. So it is significant that half of the respondents (51 percent) said that “lower prices for health care and insurance would make a big difference in their family’s financial situation.” That’s more than the 45 percent who said a rebound in the stock market would make a big difference in their situation.

Senator Obama has cited health care reform as one of the top three issues he’ll address as president. There are numerous plans already circulating in Congress to jump start the reform process, including a bipartisan health care reform package backed by 12 Senators, six from each party. Senator Ted Kennedy, who is at home battling brain cancer, is talking with lobbyists, policy mavens and lawmakers from both parties to develop a framework for health care reform for the new president. Senator Kennedy intends to introduce his legislation as soon as the new Congress convenes.

So yes, the economy will be the dominant issue between now and election day. And it will dominate the president-elect’s wait to move into the White House and it will dominate his first months — perhaps his first term — in the oval office. The economy will dominate, but it won’t eliminate other issues. The American people expect health care reform to be among those other issues — and it will be.

What may surprise some is how quickly the health care reform effort will get underway. My guess is the new president will give a major address on the issue before inauguration day. Health care reform is simply too tied to the reality and perception of Americans’ economic security. It’s too important to Senator Kennedy. It’s too important to helping businesses recover and grow. The American people want the new president to address health care reform. And the new president will need to.

McCain’s and Obama’s Inconsistent Health Care Reform Principles

Picking inconsistencies in the positions politicians take is too easy to qualify as a sport. They have to take stands on such a wide variety of issues it’s asking too much for all of them to fit into a consistent and persistent political philosophy. Pointing out the contradictions can thus be seen as a cheap shot. Then again, Lou Dobbs has made a career out of cheap shots, so what who am I not to play the game? Fittingly for this blog, there were two examples of this consistency that become apparent when you examine their their positions on health care reform.

1. McCain’s Anti-Federalist Health Care Reform Plan

Senator John McCain described himself as a “Federalist” last night. This was in the context of his explaining that the Supreme Court should reverse Roe v. Wade and leave it to each state to determine how abortion will be treated within their own boundaries. Federalism emphasizes the portion of the United States Constitution that reserves to the states powers not specifically assigned to the central government. It reflects the belief that, because voters are closer to their own state governments than to the federal government in Washington, the state is best positioned to reflect their will and protect their interests.

How surprising then that a core plank in Senator McCain’s health care reform plan is to allow health insurance companies to sell in every state benefit packages approved in one state. The result will be a rush by carriers to file their plans in the least regulated, most insurer-favored state. And it won’t take them long to identify this lowest common denominator jurisdiction. I give it three days max.

Here’s how Senator McCain’s free-for-all approach to regulation would work. Consumers in, say, California could purchase health plans approved by the Arizona Department of Insurance. I’m sure the regulators in Arizona are fine, upstanding defenders of consumers interests. But California voters had no say in who they were or what laws they enforce. A true Federalist would defend the right of Californians to create their own health care system. A false Federalist would call for Californians to accept whatever system any of the other states happens to come up with.

In many ways, this is worse than a nationalized health care system. At least Californians have representation in Washington. They have some influence on what happens there. California voters have no representation in Phoenix.

2. Obama Attacks a Progressive Health Care Subsidy

Senator Barack Obama took a lot of heat for saying he wanted a tax system that “spreads the wealth” during the debate. Yet, that’s the nature of America’s tax system: it taxes wealthier people more than poorer people. This system is called progressive. A regressive tax system puts a greater burden on lower income families than on the well off ones. In many ways, President George W. Bush’s cuts over the past eight years eased the tax burden more for those earning more than $250,000 than it did for those making less. A core plank in Senator Obama’s platform is to reverse that situation and make the tax system more progressive.

One of the least progressive portions of the tax code concern the treatment of employer sponsored health insurance. That’s because the value of these medical plans (the portion of the premium paid by the employer) is not considered taxable income. This makes employer-sponsored coverage a great deal for employees at all income levels, but it’s a regressive benefit from a tax stand point.

Take the case of Acme Widgets. It currently pays $10,000 a year on each employee’s health insurance plan. The CEO of Acme makes a ton of money and is in the 35 percent tax bracket. This means America’s taxpayers are subsiding her health care to the tune of $3,500. Her assistant makes a lot less and is taxed at a 15 percent rate, resulting in a tax subsidy of $1,500. The receptionist makes the least of all, pays no taxes and receives no tax subsidy. When the rich get more than their lower income colleagues, the tax structure is regressive.

Under Senator McCain’s proposal, the value of health insurance would be considered taxable income. He offsets this lost take home pay with a $2,500 per person ($5,000 per family) refundable tax credit. (Refundable means you get the credit even if you don’t pay taxes.) Senator Obama hammers his opponent for this “gimmickry.” But let’s see how it plays out with our friends at Acme Widgets).

The CEO’s family pays $3,500 more in taxes and gets $5,000 in a health care tax credit for a net of $1,500. The assistant’s family pays $1,500 more in taxes, receives a $5,000 credit and nets $3,500. The receptionist’s family still pays no taxes, but after the credit comes out $5,000 ahead. The well off pay more in taxes than the less well off. That’s a progressive tax system. That’s spreading the wealth.

Having It Both Ways

Senator McCain can’t have it both ways. He can’t be a Federalist when it comes to abortion and a Lowest Common Denominator-ist on health care. Well, actually he can, but he shouldn’t be able to have it both ways.

Senator Obama can’t have it both ways. He can’t be for a progressive income tax system and then attack a proposal to make the treatment of employer sponsored health insurance more progressive. Well, actually he can, but he shouldn’t be able to have it both ways.

Inconsistencies is as common in politics as false smiles and bad coffee. It’s a human undertaking and, by definition, humans tend to be inconsistent. But it is fun to point them out.

Questions McCain and Obama Should Answer on Health Care Reform

Senators John McCain and Barack Obama final debate tonight at Hofstra University will cover a host of issues. Health care reform is should be a major topic of discussion. The financial insecurity Americans feel in the face of the current economic crisis is exacerbated by concerns over health insurance. Can they afford the coverage they have? Will they be uninsured — and uninsurable — if they lose their job?

How the candidates approach health care reform says a great deal about their approach to governing. Senator McCain’s plan is primarily market-driven and uses the regulatory powers of government lightly. Senator Obama’s approach relies more heavily on government intervention and more dramatically regulates carriers, pharmacies and health care providers.

Neither of their health care reform plans are very detailed. And I’ve written before, they demonstrate the candidate’s attitudes and principles towards reform mor than dogmatic policy; they are a starting point for debate rather than specific legislative demands. I’ve also pointed out that both reform packages contain serious flaws. So the two Senators have a lot of explaining to do. Here’s a few questions that would be a good start:

Senator McCain would allow benefit plans approved for sale in any state to be sold in every state. This would lead to a rush to the bottom as carriers file their plans in the most lenient state they can find. It would mean that voters in a state would have no say in how health plans sold to them are regulated. How would Senator McCain mitigate these inevitable outcomes? Does he think states have no right to regulate health insurance sold to its citizens?

Senator Obama would require carriers to sell policies to anyone applying for coverage and prevent them from excluding pre-existing conditions. Yet he does not require adults to buy coverage. They could simply wait until the need for medical care arises and then buy insurance. It’s the equivalent of waiting until after your car hits a tree to buy auto insurance. New York and New Jersey have similar rules. It’s no surprise that the average cost of individual coverage in those states is twice that in California. Senator Obama claims his top priority is to make health care coverage more affordable. How does he reconcile this contradiction?

Senator McCain wants to treat the value of health insurance as taxable income to workers and replace this with a tax credit of $2,500 for an individual and $5,000 for a family. In many ways this would be a more fair and progressive use of the tax code than the status quo. After all, higher paid executives are in higher tax brackets, and consequently receive a bigger tax deduction, than their lower paid colleagues. This would change under Senator McCain’s plan. Executives would be hit with a bigger tax bill, but receive tax credit as everyone else. Given a more progressive system, why does Senator Obama reject this approach?

The tax credit in Senator McCain’s plan is supposed to make buying coverage affordable for America’s families. However, medical inflation increases at a far greater rate than general inflation. Senator McCain’s tax credits don’t increase with inflation at all. Since the cost of medical care is the primary driver of health insurance premiums, the tax credits will cover a smaller percentage of premiums over time. Eventually, the tax credits won’t offset enough of the cost (let alone offset the impact of losing the tax deduction). How would Senator McCain deal with this problem?

Speaking of health care costs, how do Senators McCain and Obama intend to tame that beast? Yes, they both support a greater emphasis on prevention and leveraging technology. Everyone does — and these steps will have an impact. However, an aging population demanding the latest technology for an increasing number of ailments will soon overwhelm this benefit. So, beyond the obvious and widely shared solutions, does either candidate offer any unique approach to controlling rising medical costs?

Senator McCain’s tax credits would allow individuals to purchase coverage in the marketplace; Senator Obma would drive consumers into a government-run “exchange.” What do they like about the other’s approach? What don’t they like about it?

And wouldn’t it be fun to hear them talk about consolidation among hospitals, which in some communities have created health care monopolies? Or discuss whether for-profit health insurance companies have any place in America’s health care system?

The odds of any of these questions being addressed is small. Really, really small. Intead, all we’re likely to get from the debate tonight are snippets of their stump speeches. These will express their mutual desire to  make health care coverage accessible and affordable. Then they’ll attack the other’s approach as “the same deregulation that got us into the banking mess” or “a big step down the road to socialized medicine.”

We deserve to hear more about their health care reform plans. Even a little in-depth dialogue on the subject would be nice. Unlikely, but nice.

The Flawed Health Care Reform Plans of McCain and Obama

Both Republican Senator John McCain and Democratic Senator Barack Obama have put forward substantial healthcare reform plans. They both seek substantial changes in the current system. That they take starkly different approaches reveals a great deal about how their view of the current system and what they perceive the role of government to be in overcoming them. That both health care reform plans are dramatically flawed would seem to be of great concern, but probably isn’t. After all, these are just starting points and whatever new health care system emerges from Washington in the next few years is likely to be significantly different than either of these plans regardless of which candidate is elected.

As I’ve noted previously, the two plans are campaign promises, meaning they are more an expression of the candidates’ attitudes towards reforms than a blue print for legislation. That both starting points are flawed should be of concern, but is neither fatal nor devastating. They are, after all, just starting points.

Interestingly, the biggest flaw in each plan is the mirror image of the other. Senator McCain would encourage consumers to buy coverage in the individual market, assuming their employer isn’t providing health insurance, by offering tax credits — $2,500 for an individual and $5,000 for a family. While this would help many Americans buy coverage, there’s no requirement imposed on health plans to accept them for coverage (although there might be high risk pools under his plan for those turned down by carriers). Senator Obama, on the other hand, requires health plans to accept all applicants, but he fails to require everyone to purchase medical insurance. As has been demonstrated time and again, this is a sure path to higher premiums. Just look at New York and New Jersey where carriers must sell, but consumers need not buy, coverage. The premiums there are twice that in California.

Each health plan has other problems. Senator McCain would allow carriers to shop for the most lenient jurisdiction in which to file their plans, then impose this lack of regulation on other states. It’s competition without representation that is sure to result in consumer distress, political shenanigans that would embarrass an earmark addict, and undermine the credibility of the system.

Senator Obama, on the other hand, wants to create a government-run health care program to compete with private plans. The idea is to increase fair competition, but the result will be anything but fair. When the umpire picks up a bat, he’s rarely called out on strikes. Similarly, when the government competes in a market it regulates, the playing field is invariably tilted in favor of the government. The danger inherent in Senator Obama’s approach is that the government program, given unfair advantages, will squeeze out the private sector. The result will be a government-run system imposed on the nation without the accompanying debate such a policy shift warrants.

At Tuesday’s presidential debate in Tennessee expect to hear a great deal about their health plans. They’ll both be eager to dive into specifics about their own program — and to describe the failings of the other side’s plans. There will be heated exchanges concerning taxes and government takeovers. There will be fierce arguments over regulation versus goverment getting out of the way. As you watch, keep one thing in mind: none of it matters all that much.

Come November 4th one of these candidates will win. Come January 20, 2009 the winner will be sworn in as President of the United States. Unless there’s a miracle, the economic situation will push back meaningful efforts on healthcare reform for at least a few months. Yes, there will be a team put in place with orders to produce a meaningful plan within, let’s say, 100 days. But the real work of shaping the reforms could be delayed several months or a couple of years depending on the nation’s economic health.

Most importantly, once the plan is put forward, it will be changed profoundly by Congress and the new Administration as they respond to the public policy advice and political pressure of the nation. Some form of health care reform is likely to emerge before the next presidential election. Hopefully the major flaws in what’s currently on the table will be addressed — ideally without introducing new and bigger problems.

Do Schwarzenegger Vetoes Signal a Push for Comprehensive Reform in 2009?

Governor Arnold Schwarzenegger vetoed a host of health care reform bills on Tuesday. Some of them were to be expected. For example, he struck down Senate Bill 840, Senator Sheila Keuhl’s attempt to create a government-run, single payer system in the state. The Governor has been on record as opposing this approach for years and has vetoed the concept in the past. His vetoes of several bills requiring medical plans to include coverage for certain conditions is also consistent with his previously stated opposition to coverage mandates.

But there were lots of surprises on the list, too. Governor Schwarzenegger vetoed legislation that would have made it far more difficult for carriers to insurance companies to rescind an insured once they’ve accepted an application for individual or family coverage (Assembly Bill 1945 by Assemblyman Hector De La Torre. No carrier practice has garnered more negative press — and bigger fines — than rescission. From a political point of view, AB 1945 was a soft ball. Yet Governor Schwarzenegger struck it down.

He vetoed legislation (Senate Bill 1440 by Senator Keuhl) to compel carriers to spend 85 percent of the premium they take in on medical care — even though this concept was contained in the unsuccessful comprehensive health care reform package the Governor was pushing for last year. The same fate befell Senate Bill 973 by Senator Joe Simitian that would have created a statewide public insurer to link together existing regional and county-based health plans even though it too was similar to a portion of the Governor’s own reform plan.

Governor Schwarzenegger’s veto of Assembly Bill 2 by Assemblyman Mervyn Dymally was especially surprising. It would have expanded the ability of the state’s existing high risk pool to help more Californians unable to qualify for coverage in the private marketplace due to pre-existing health conditions.  The program needs significant help to continue to meet its mission. He also vetoed Senate Bill 981 by Senate President Pro Tem Don Perata which would have prohibited “balance billing” by doctors and other care providers.

The Governor had his reasons for keeping these bills from becoming law. His veto message concerning AB 1945 deplored the practice of unfair rescission and listed consumer-protection provisions he would want to see in legislation dealing with the issue. But he noted that AB 1945 was “written by the attorneys that stand to benefit from its provisions” and would lead to unwarranted litigation. Similarly, he preferred a different solution to the problem of balance billing than the approach embodied in SB 981.

Vetoes of this type, over approaches to solving problems, are common. They represent legitimate policy and political differences. The Legislature, for example, considered several bills addressing recission. They could have worked with the Governor’s office to fashion a compromise that he would sign. That didn’t happen. The veto did.

But it’s Governor Schwarzenegger’s rationale for vetoing AB 2, SB 1440, and SB 973 that best illuminates what’s in store for California concerning heatlh care reform. In all three of his veto messages, Governor Schwarzenegger made clear he wants comprehensive health care reform. Piecemeal and incremental changes are unacceptable.

I’ve written previously about why state health care reform efforts usually fail. In my mind, meaningful and comprehensive reform will need to come from Washington. And while enacting such reform has been greatly complicated by the current financial crisis, it still remains near the top of the domestic agendas for both Senator John McCain and Senator Barack Obama.

If the new Congress and the next Administration succeed in enacting dramatic health care reforms, it could preempt laws and regulations at the state level. To me, this suggests the efforts of California’s leaders might best be spent in helping to shape what happens in Washington, DC. Governor Schwarzenegger apparently disagrees.

Governor Schwarzenegger’s vetoes make clear he intends to pursue a California solution. It’s not just what the veto messages say, it’s their political impact that is important. They keep pressure on lawmakers to enact substantial reform. His opponents, for example, will be unable to call for a “time out” on further changes to the system while the new laws are given a chance to work. His allies, while angry at the vetoes, will work all the harder to get their pet reforms enacted.

In some significant ways, the potential for success is greater in 2009 than it was in 2008. Governor Schwarzenegger will be negotiating with a new cast of Legislative Leaders.  He will will be working with a relatively new Legislature, many of whom will have no scars with from his previous effort. Yet, unlike in 2007 when he launched the Year of Health Care Reform, a year in which, for most of it, the Governor offered only general principals, in 2009 he can use his defeated reform legislation, Assembly Bill X1-1, as a detailed starting point.

Certainly, the task won’t be easy. It may even be impossible. The state’s finances are in shambles and health care reform is expensive.

But there’s a legacy to be attended to. Plus, the Governor does not like to lose and the defeat of ABX1-1 was both visible and painful. His vetoes are a clear signal of where he’s headed. Expect 2009 to be the Year of Health Care Reform. Again.

Will National Health Care Reform Be a Victim of Financial Chaos?

The current financial crisis is a tragedy for those losing their jobs, their homes and their financial security. Secondarily, it represents a failure of public policy that will impact the country for years to come. One of the issues most likely to be dealt a set-back from the bank meltdown is national health care reform.

Whoever is elected president, health care reform high was to be high on their domestic policy agenda. The Democratic nominee, Senator Barack Obama has long made addressing access and affordability a centerpiece of his campaign. While Senator John McCain, the Republican candidate, has been less focused on health care reform, he has repeatedly made clear that he intends to change the status quo. However, recent events have cast a doubt on the underlying principals of their reform packages. Further, those events may have eliminated the resources substantial changes will require.

Senator McCain’s health care reform approach has taken the biggest beating from the financial market turmoil. A self-described “deregulator,” Senator McCain would loosen government oversight of the health care coverage marketplace. For example, he would allow carriers to offer plans in every state so long as they are approved by anystate. This means health insurance companies could shop for the jurisdiction with the weakest regulatory system. The current financial crisis demonstrates the danger of such an approach. Few would argue that it was caused by too much regulation of banks and mortgage companies. Neither party in Congress is likely to support this approach in light of the devastation deregulation of the banking industry helped to create.

Senator Obama’s health care reform plan has also been battered by the mess in the financial markets. He would expand existing government efforts like the State Children’s Health Insurance Program. He would offer health insurance coverage through new government-run health plan. This National Health Insurance Exchanges would be both a participant in the market and a regulator. Yet Fannie Mae and Freddie Mac have underscored the danger of mixing the two roles. The government has a tough enough time regulating markets. To ask it to both umpire the game while also stepping up to the plate would tax the competence of any organization. To ask the government to try this feat is foolhardy,

Then there’s the cost of the candidate’s health care reform plans. Senator McCain claims his reform plan will cost $10 billion; Senator Obama says his will cost $50 billion. Both, no doubt, underestimate the final bill. However, the proposed $700 billion Wall Street rescue plan represents about 5% of the nation’s Gross Domestic Product (GDP) of approximately 13.8 trillion in 2007. It dwarfs the astronomical federal deficit of $482 billion. It is, in other words, a vacumn cleaner that will suck up much of the resources needed to implement any kind of meaningful reform.

Senator Obama recognizes this. According to the Associated Press, Senator Obama said he “remains committed to addressing needs in health care, education and energy.” However, he indicated tax cuts for the middle class will be his top priority, noting they are “particularly important to strengthen an economy sliding into economic recession.

Health care reform was never going to be an easy issue for the next president to tackle. Finding the right role for government and the right level of regulation was always going to be a challenge. Given the new economic landscape and the fall-out from the current financial crisis, fashioning meaningful, comprehensive health care reform will be even more difficult.

What this means is that national health care reform will be delayed. It will also be more contentious and a greater challenge than previously feared.